"We have long identified climate change as a serious environmental issue, and shareholders are increasingly asking about the risks as well as the opportunities associated with it."

– Bill Ford, Chairman and CEO, Ford Motor Company

The Securities and Exchange Commission (SEC) is a federal department that Congress created in the wake of the stock market crash of 1929, which led to the Great Depression. The SEC's charge is to ensure that companies that offer their securities for investment purposes tell the truth to prospective investors, including the risks presented, and to regulate those who sell securities, like brokers and stock exchanges. SEC regulations require specific disclosures of financial risks unique to a particular company's business. Over the years, the SEC has issued "guidance" documents, which suggest how companies can stay in compliance with laws and regulations governing disclosures.

On February 8, 2010, the SEC issued a new guidance document entitled "Commission Guidance Regarding Disclosure Related to Climate Change." In response to specific requests by institutional investors and investor groups, the SEC decided to review whether securities laws would require disclosure of climate change-related risks to potential investors. In support of requiring enhanced disclosures of risks related to climate change, the SEC noted that several states and local governments were already regulating greenhouse gases, Congress was considering carbon "cap and trade" legislation, the Environmental Protection Agency (EPA) had promulgated regulations requiring the disclosure of greenhouse gas emissions from a large number of industries, EPA was in the process of drafting regulations concerning greenhouse gases, significant industries had already begun reporting greenhouse gas emissions, and the greenhouse emissions of many international companies are already regulated. The SEC also stated that it had been requiring disclosure of environmentally related disclosures for decades.

The SEC also looked at the various ways climate change could affect companies that investors would find relevant in making investment decisions. Climate change laws and regulation could obviously significantly affect operating and financial decisions, like capital expenditures to comply with greenhouse gas reduction or reporting requirements, either based on domestic or international requirements. In addition, climate change may reduce demand for certain goods and services that could have an effect on profitability. Companies operating in coastal areas or have key suppliers operating in such locations may be affected by rising waters or other weather-related losses related to climate change. Companies involved in industries that could be impacted by climate change may have additional financial burdens in the form of higher insurance premiums or more difficulty in getting credit for their operations.

The SEC's guidance should inform those charged with compliance with SEC disclosure requirements about potentially material information. Managers will need to determine how likely or unlikely the potential consequences of climate change could affect their business. Based on this review, if the manager determines that the effects of climate change present a material risk, the company will need to provide such disclosures to investors or run afoul of SEC regulations.